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BOONE BOWLES

WHAT IS THE COST OF CAPITAL?

MODULE 6

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Agenda

  1. What is the cost of capital?

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  • High Risk = High Return! Right?

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  • So High Risk = No Return?

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  • How do I estimate systematic risk?

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  • How do I estimate the cost of capital?

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  • Can we bring this all together?

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What did we learn here?

  1. What is the cost of capital?
    • Expected return of project.
  2. High Risk = High Return! Right?
    • Yes, but with some nuance.
  3. So High Risk = No Return?
    • No, but we need systematic risk.
  4. How do I estimate systematic risk?
    • With BETA.
  5. How do I estimate the cost of capital?
    • With the CAPM.
  6. Can we bring this all together?
    • We call it WACC.

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WHERE BUSINESS MEETS LEADERSHIP